Clean Air Mkts. Group v. Pataki

The court holds that the New York Air Pollution Mitigation Law is preempted by the Clean Air Act (CAA) and violates the U.S. Commerce Clause. Under Air Pollution Mitigation Law § 66-k, an electric generator is assessed an offset penalty when it sells a sulfur dioxide (SO2) allowance to a generator in an upwind state. The offset imposed by § 66-k is equal to any sum received for the sale of the SO2 allowance, but does not apply if the generator attaches a restrictive covenant to the allowance that prevents its subsequent sale to an upwind state. Allowances with restrictive covenants sell for less than an unencumbered allowance. The court first holds that the group challenging the Air Pollution Mitigation Law has standing. The group set forth specific facts showing that one of its members suffered an actual injury-in-fact caused by the law. The group also demonstrated that the value of the member's allowances would no longer be diminished should the law be declared unconstitutional.

The court next holds that the CAA preempts the § 66-k offset penalty. The § 66-k restrictions on transferring allowances are contrary to the CAA Title IV provision that allows the transfer of SO2 allowances among any covered electric-generating units. Moreover, Congress and the U.S. Environmental Protection Agency both rejected geographic limitations, such as § 66-k, on the transfer of SO2 allowances. Further, the § 66-k restrictions on transferring allowances result in decreased availability of SO2 allowances, which would allow New York to indirectly regulate SO2 emissions in other states. In addition, the court holds that the § 66-k restrictions violate the Commerce Clause by discriminating against articles in commerce and by restricting the transfer of SO2 allowances to upwind states. The law imposes upon in-state units the entire cost of compliance, either by forfeiture of receipts from unrestricted transfers or by reduced value of restricted SO2 allowances. The law also does not restrict or penalize the transfer of SO2 allowances within the state. Thus, the law is protectionist because it gives a preferred right of access to SO2 allowances to in-state units over units in upwind states. Additionally, there is no direct connection between the requirements of the Air Pollution Mitigation Law and the purported, legitimate state concerns of reducing acid deposition and protecting public health and the environment. Consequently, the court declares the Air Pollution Mitigation Law null and void and enjoins its enforcement.